Firm’s Environmental Expenditure, R&D Intensity, and Profitability

Tae Hyung Kim and Bowon Kim
Additional contact information
Tae Hyung Kim: College of Business, KAIST, Seoul 02455, Korea
Bowon Kim: College of Business, KAIST, Seoul 02455, Korea

Sustainability, 2018, vol. 10, issue 6, 1-12

Abstract: In order to live up to its environmental responsibility, a firm makes an environmental expenditure to reduce its pollution emissions. Then, an important question is what impact the environmental expenditure has on the firm’s profitability. In this paper, we first propose and test a hypothesis that the more environmental expenditure the firm makes, the less profitability it enjoys, i.e., there is a negative relationship between the firm’s environmental expenditure and its profitability, more specifically its return on assets (ROA). We go further to suggest and test the second hypothesis that the more R&D-intensive the firm is, the lower the “negative impact” of the environmental expenditure on the firm’s profitability is, i.e., the firm’s R&D intensity moderates the negative relationship between firm’s environmental expenditure and its profitability. A significant implication is that since it has to spend money on reducing its pollution emission, the firm should also enhance its innovation capability. That is, by investing in its R&D, the firm can mitigate the negative impact of environmental expenditure on its profitability. In order to test the hypotheses, we collect financial data and carry out panel regression analyses. The analysis results support our hypotheses that there is a negative relationship between the firm’s environmental expenditure and its profitability and that the negative relationship is moderated by the firm’s R&D capability represented by its R&D intensity.

Keywords: environmental responsibility; environmental expenditure; ROA; R&D intensity (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/6/2071/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/6/2071/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:6:p:2071-:d:153167

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().